Editor’s Note
This article, based on the IDEX Online Polished Diamond Price Index, reports a modest 2.5% year-over-year increase in global polished diamond prices for June. It highlights the cautious approach of jewelry merchants amid economic uncertainty, despite solid retail demand.
According to the IDEX Online Polished Diamond Price Index, polished diamond prices in the global market edged upward only modestly in June. The average price of polished diamonds in June 2006 rose only 2.5 percent over the average for the same month a year ago.
While retail demand for diamonds and diamond jewelry remains relatively solid, jewelry merchants are not re-stocking as rapidly due to near term uncertainty related to the possibility of a global economic slowdown. Further, in the U.S. market, which consumes about half of all polished diamonds worldwide, there is uncertainty over the upcoming holiday selling season of November and December. U.S. jewelry merchants generate about one-third of their annual sales in this all-important two-month period, which includes Christmas, Chanukah, and Kwanza.
Like many commodities – gold, silver, platinum, and others – diamond prices rose sharply in the fall of 2005. However, unlike other commodities, diamond prices never surged. Instead, they peaked going into the 2005 holiday selling season, and then settled back to a more normalized level in 2006.
In part, the lack of a diamond price frenzy, which typified many other commodities, is related to the lack of a trading market for financial speculators. While there are several diamond bourses around the world, membership is limited to diamond traders. Financial traders and speculators are excluded from membership. Most analysts believe that financial traders were largely responsible for the recent run-up in the price of most commodities.
Overall, larger polished diamonds and very small diamonds (under a tenth of a carat) rose in price while gemstones in the 0.50 to 1.00 carat range generally declined in price. This has been an ongoing trend for many months.
Among very large diamonds, round cut five carat polished diamonds have risen a dramatic 17 percent in price since June 2005. These diamonds represent less than 1 percent of the market.
IDEX Online Research noted that polished prices have moderated for several reasons including the following:
– Demand in the U.S. market, which consumes about 50 percent of the world’s diamond jewelry by value, has not been as strong as expected.
– Diamond suppliers’ inventories are high, so polished diamond prices have moderated.
– Rough diamond prices have stabilized, and, in many cases, have fallen.
Forecasts by IDEX Online Research suggest that there are some factors that could cause diamond prices to increase over the next several months, including the following:
– The Japanese economy appears to be recovering, and Japan’s consumers appear to have resumed buying jewelry, especially diamond jewelry.
– U.S. jewelers appear to have let their diamond jewelry inventories drop due to uncertainty about demand later this year. As jewelers replenish their stock, their demand could drive prices higher.
– The Diamond Trading Company (DTC), the sales and marketing arm of De Beers, is stepping up its diamond advertising and marketing efforts. The company recently announced that it was increasing its U.S. advertising budget by 17 percent this year. Further, De Beers’ clients – those who cut and polish the rough diamonds – are also increasing their marketing efforts for diamond jewelry.
The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices of the global diamond industry. The IDEX Online Diamond Price Index objectively reflects price trends as they happen. The Diamond Index and Diamond Drivers were formulated following comprehensive research and analysis of the IDEX Online inventory database, aggregated since February 2001. Research and development were conducted in cooperation with Dr. Avi Wohl, Senior Lecturer of Finance at the Faculty of Management, Tel Aviv University.